Whenever the stock market rises, the press cheers like that is a good thing. But increasingly people are wondering why. Something has changed.
Indeed, a lot of the rules around how we are supposed to think about things have changed in the past 20 years. It used to be that when companies made a lot of money they went out and built new factories and hired a lot of new people. And when that was true, it made sense to cheer when the companies made a lot of money. But lately when companies make a lot of money, they buy back their own stocks, driving up their stock prices, and CEO’s get annual bonuses into the hundreds of millions of dollars. Then they announce a new round of layoffs so they are spending less, and the stock price goes up even more. The CEO then gets more bonuses for meeting additional targets, so then they raise prices. Profits rise, shares rise, and the CEO cashes out again. And the whole things is no longer any benefit to those who don’t own shares or work as CEOs. Things change, but it takes a while for our thinking to catch up.
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